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The Journal of Portfolio Management

The Journal of Portfolio Management

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Article

A Valuation Study of Stock Market Seasonality and the Size Effect

Chen Zhiwu and Jan Jindra
The Journal of Portfolio Management Spring 2010, 36 (3) 78-92; DOI: https://doi.org/10.3905/jpm.2010.36.3.078
Chen Zhiwu
is a professor of finance at Yale School of Management in New Haven, CT. zhiwu.chen@yale.edu
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Jan Jindra
is an assistant professor at Menlo College in Atherton, CA. jjindra@menlo.edu
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Abstract

Existing studies on market seasonality and the size effect are largely based on realized returns. In this article, Chen and Jindra investigate seasonal variations and size-related differences in a cross-stock valuation distribution. They use three stock valuation measures, two derived from structural models and one from the book-to-market ratio. The authors find that the average valuation level is highest in mid-summer and lowest in mid-December. Furthermore, the valuation dispersion (kurtosis) across stocks increases toward year-end and reverses direction after the turn of the year, suggesting increased movements in both the underand overvaluation directions. Among size groups, small-cap stocks exhibit the sharpest decline in valuation from June to December and the highest rise from December to January. For most months, small-cap stocks have the lowest valuation among all size groups and show the widest cross-stock valuation dispersion, meaning that they are also the hardest to value. Overall, large-cap stocks enjoy the highest valuation uniformity and are the least subject to valuation seasonality.

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The Journal of Portfolio Management: 36 (3)
The Journal of Portfolio Management
Vol. 36, Issue 3
Spring 2010
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A Valuation Study of Stock Market Seasonality and the Size Effect
Chen Zhiwu, Jan Jindra
The Journal of Portfolio Management Apr 2010, 36 (3) 78-92; DOI: 10.3905/jpm.2010.36.3.078

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A Valuation Study of Stock Market Seasonality and the Size Effect
Chen Zhiwu, Jan Jindra
The Journal of Portfolio Management Apr 2010, 36 (3) 78-92; DOI: 10.3905/jpm.2010.36.3.078
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  • Article
    • Abstract
    • VALUATION MEASURES
    • SEASONALITY IN VALUATION MEASURES
    • VALUATION SEASONALITY BY SIZE GROUPS
    • VALUATION AND RETURN SEASONALITY
    • CONCLUDING REMARKS
    • APPENDIX A
    • APPENDIX B
    • ENDNOTES
    • REFERENCES
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